Mortgages typically contain what is called a “due on sale” clause. These clauses generally provide that if the mortgagor (you) transfer any portion of your ownership interest in the property, the note immediately becomes due and payable. Let’s say, for example, that you buy a house using a mortgage to finance the purchase. Later on, you get married and decide to put your spouse on the title. If the mortgage company gets wind of this, they can invoke the due on sale clause and call your note due.
If you decide to form an LLC and transfer your property to the LLC, the same would hold true, even though you are the sole owner of the LLC. This is because as far as the law is concerned the LLC is a separate legal entity. Thus, the same concept that protects you from liability also prevents you from transferring the property to your LLC without triggering the due on sale clause.
There is a solution, though. Some lenders will give mortgages to LLC’s. The lender will, of course, require you to sign personally. The interest rate will be a little higher than a conventional loan made to an individual, but it can be done. If you are interested in more information, please feel free to get in touch.
It is common many times for both a State and the lending guidelines to require title (at the time of purchase) to be taken by a “natural” person(s). In some instances you may take title at purchase in a trust, if applicable.
However, after the original deed to the property is recorded, and the mortgage is funded, then it should not be an issue to transfer title to your property to a LLC (Limited Liability Corporation) you have previously formed, by way of Quit Claim Deed. The title and/or attorney who closed the original purchase will be able to assist you with this after your closing and recording of the deed, mortgage, and/or deed of trust.
Should you have the need to refinance the property in the future, and the guidelines are still the same regarding how you are vested in title, then you would again Quit Claim the property to your “natural” selves, record the mortgage or deed of trust, and then once again Quit Claim to the LLC.
For your line of credit, if you did not open it at the time of purchase, then you may find that your local bank would not have an issue with issuing LOCs ( line of credit – whereby you only pay on what you use) when the title is held by a LLC. This would be a commercial line of credit and should not be an issue. However, should you open a LOC with a mortgage broker, after the original closing, then you may be required to quit claim the property back to your natural selves before the lending institution would grant the line against a rental property.
I hope this addresses your concerns…Good Luck!